If the UK is anything to go by, it looks like salary sacrifice schemes could encourage more drivers to purchase electric vehicles (EV). And with Australia’s adoption numbers lagging behind other countries, this might just be the boost our EV industry needs. With our friends at Fleet Auto News took, we take a closer look.
Company cars can drive electrification
In the UK, the government is encouraging companies and employees driving vehicles for work to buy electric vehicles by significantly reducing the tax payable on private usage.
Just like in Australia, employers pay additional tax on the non-cash benefits that employees receive. Company cars are one of the most popular benefits offered and the UK operates a system similar to novated leasing which allows employees to salary sacrifice a vehicle.
By using the tax system to favour cars that are electric powered, or zero emissions, over ones with petrol or diesel engines, the UK is taking a different approach to Australia in electrifying their national carparc.
Innovative tax incentives to lower emissions
The tax paid on company cars by UK employees is called Benefit-in-Kind (BIK). It’s calculated using the cost of the car, the employee’s annual income and how much CO2 the car produces.
In 2018/19 the BIK rate for zero emissions vehicles was 16%. In the 2020/21 financial year the government reduced it to 0%. It has been increased to 1% in the 2021/22 financial year which is still lower than 37% which would apply to the most popular novated lease vehicles in Australia.
Tusker, a UK company that specialises in salary sacrifice programs for employees, reported a significant increase in orders for battery electric vehicles (BEVs) since the tax change for the 2020/21 financial year.
Electric outsell traditional vehicles by 4 to 1
On their website, Tusker said, 50% of new car orders in 2020 were for pure electric vehicles and only 20% were for traditional petrol and diesel powered cars. The remaining 30% were for hybrid vehicles including plug-in electric vehicles (PHEV).
To learn more about consumer attitudes towards electric vehicles, Tusker commission a survey of 2,000 drivers and found out that 63% of them were considering an EV for their next car.
Attitudes change as awareness grows
The survey also showed that 79% of drives travelled less than 150 miles per week which can be done on a single charge with most electric vehicles on the market.
Objections to electric vehicles were purchase price, availability of charging stations and vehicle range. Lack of vehicle choice was one reason mentioned by 23% of the respondents.
Tusker also asked the drivers about salary sacrifice schemes and receiving a car as a benefit. Not surprisingly, 80% of people said they would be interested in a fully insured and maintained company car as an employee benefit. Though only 51% were aware of salary sacrifice as a way to get one.
Education and awareness are the challenges faced by manufacturers of electric vehicles and fleet leasing companies that provide salary sacrifice programs in Australian and the UK.
Survey says UK trend towards electric will continue
Once someone drives an electric vehicle their concerns about performance and comfort are alleviated. Then after an extended test drive, and some education on how far they travel each day, the range anxiety disappears as well.
Based on the survey findings it looks like the trend towards electric vehicles in salary sacrifice programs will continue given the favourable tax scheme in the UK.
What the NRMA thinks
Government subsidies for EV purchases have worked in many jurisdictions by stimulating demand.
The effectiveness of a subsidy is often greater when combined with important preconditions such as investment in charging infrastructure, reduced reliance on fossil fuels for electricity generation, long running community information campaigns, and monitoring of pricing changes at dealerships.
There are elements of the Australian tax system that act to harm the growth of the EV industry. As well as exploring solutions like the one discussed in this article, key areas which should be reformed include:
- Altering Fringe Benefits Tax (FBT) to focus on emissions rather than price.
- Extending FBT exemptions to include novated leases.
- Exempting Battery Electric Vehicles (BEVs) from the Luxury Car Tax.
We are working with the Australian Government on its Future Fuels Strategy to try and drive these recommendations.